MR. FRATTO: Hello, everyone; thanks for coming. We have for our briefing
this afternoon Treasury Secretary Hank Paulson will open with some remarks
-- I know you saw the President's statement, so the Treasury Secretary will
make some remarks. And then we have the Chairman of the President's
Council on Economic Advisors, Ed Lazear, who will also be here available
for questions.

I'm going to turn it over to Hank and let him get started.

SECRETARY PAULSON: Thanks, Tony, and good afternoon. Before the President
left the Middle East he told the nation he recognized the growing concerns
about the economy and he asked his economic team to assess the need for a
growth package.

I talked with knowledgeable people in all parts of the economy and reviewed
the data with our economic team, and we regularly reported our thinking to
the President while he was traveling. When he returned he made the
decision that we need to act quickly to support the economy in the short
term.

The long term fundamentals of our economy are strong and I believe that our
economy will continue to grow. At the same time, the U.S. economy is
experiencing a significant housing correction. This correction was
inevitable after years of unsustainable whole price appreciation and it is
exacting a penalty on our economic growth. We are taking steps to minimize
impact on homeowners and the real economy, and we will continue to work
with Congress to do more on housing.

The housing correction, capital market turmoil and high oil prices together
have caused our economy to slow materially in recent weeks. While I'm
confident in our long-term economic strength, the short-term risks are
clearly to the downside and the potential cost of not acting has become too
high. We must act now to support our economy this year.

The President laid out today clear principles that should guide the
creation of an effective growth package. We are focused on working with
Congress to quickly reach consensus on a plan that gets cash to consumers
and gives businesses incentives to invest, to grow and to hire. We know
from experience that these policies work to stimulate growth in the short
term. The package should be robust enough to make an impact this year and
should be temporary, so that it doesn't significantly impact our long-term
fiscal position.

Over the last few weeks I have consulted the leaders in Congress and a
broad group of members of both parties to gather their views. I heard from
them the same thing the President heard from them yesterday: Our economy
is growing slower than expected, and that means we need to act quickly to
put together a package that is temporary, simple enough to get enacted
quickly, effective at boosting growth and job creation this year, and large
enough to make a difference.

I am confident that the principles the President outlined today are a solid
foundation on which to build. They reflect the principles members of
Congress have advocated publicly and have discussed with me privately in
recent weeks. I look forward to engaging with congressional leaders
immediately to support our economy this year.

Thank you, and now we'll take your questions. Yes.

Q Can you talk about the amount of rebate (inaudible) incentive that the
White House is prepared to (inaudible)? And will any cash go to people who
don't pay taxes?

SECRETARY PAULSON: Well, again, what has been put out is our broad and
important principles. And a significant part of this is going to be tax
relief that will go to consumers. And we've been talking about a package
that is 1 percent of GDP, so that's in the neighborhood of, you know, $140
to $150 billion. And we have been thinking that the biggest portion of
this package should be aimed at consumers, taxpayers, and providing them
relief.

Q Can you be any more specific than that?

SECRETARY PAULSON: I think I shouldn't be more specific here. The
President intentionally put out guidelines, broad principles, because we're
looking to be collaborative in working with Congress here.

Q But folks on the Hill are saying that the White House already has
something in mind in the neighborhood of $800 for individuals, $1600 for
families.

SECRETARY PAULSON: As I said, we've done a lot of work, but the President
felt, and we strongly agree, that there's strong bipartisan support, and
there's a lot of agreement. And it's really -- the areas of agreement are
huge. When you can get leaders on both sides to agree that we should be
focusing on something that's temporary, there are lot of important
long-term priorities -- differences in long-term priorities -- but when
they say we want to focus on something that's temporary and something that
will be stimulative, that will help growth this year, and we'll work
quickly, that's -- those are very, very important areas. And so what we're
doing now -- and I'm not looking to emphasize differences, and we
intentionally don't want to be overly specific because, again, we're
looking to be collaborative, and there's a lot of bipartisan agreement.

Q But is that broadly in the neighborhood?

SECRETARY PAULSON: What?

Q When you say you want broad-based tax relief, does that mean that
you're not open to targeting it towards the middle class, or low-income
people? And also, are you open to things like unemployment insurance
extensions -- some of these things that Democrats want; aid to the states?

SECRETARY PAULSON: Again, let me say, and I was expecting questions like
this, they're natural questions -- (laughter) -- I think it's not my job to
negotiate this package in this room. Obviously I've heard a lot of ideas,
and there are a lot of ideas, and those are things I hear discussed. But
again, what we are -- what we're focused on is, again, tax relief, quick
tax relief, to consumers and then encouraging business, incentivizing
business to grow and to hire.

CHAIRMAN LAZEAR: Can I just add to that?

SECRETARY PAULSON: Yes.

CHAIRMAN LAZEAR: Excuse me, I'd just add to that. There are two major
parts of the economy that we have to deal with: the consumption side, and
the investment side. Consumption is important, of course, because it is
the major component of GDP; it's 70 percent of GDP. But in addition to
that, investment is extremely important not only because it's a significant
part of GDP, but also because investment is the way that we create demand
for labor. And demand for labor means more jobs and more wages, and that's
the reason that we have to focus on that side as well.

Q But for those of us who aren't economists, does broad-based tax relief
mean for everybody, or -- I mean, can you explain what that term means?

SECRETARY PAULSON: Well, the -- again, the President again is focused on
broad-based tax relief for those who are paying taxes, and that was the
principle he laid out. This is something that has worked well before, has
worked in 2001, worked in 2003 -- get to consumers, put money in the hands
of people, letting them spend it rather than the government spend it.

CHAIRMAN LAZEAR: Yes, let me get -- I don't want to get all in the front
row.

Q Can we just -- can we say the neighborhood of $800, what's coming from
the Hill? I know you don't want to be specific, but does that sound like
in the neighborhood of something you might find reasonable?

SECRETARY PAULSON: I don't want to play, "is it bigger than a breadbox" or
whatever.

Q Well, we don't either. And those are the figures we're hearing

SECRETARY PAULSON: I know that -- I would just simply say, I heard the
rumors out there, I know those numbers are out there. What the President
said today is, he laid out guidelines -- and again, what we're trying to do
is we're -- want to be open, collaborative, not have too much specificity
while we're working on a collaborative basis with Congress to work out the
details.

Q Senator Obama had suggested using Social Security as a form of payment
--

Q So then that means you haven't decided anything then?

SECRETARY PAULSON: No, no.

Q -- $250 check for Social Security, one time. Are you guys looking at
anything like something for elderly people on fixed incomes?

SECRETARY PAULSON: We've looked at a lot of things. We believe that
there's a great benefit to being simple. The Christmas season has come and
gone. We're not trying to decorate a Christmas tree here. That a huge
part of this is going to be speed, it's going to be getting money out
quickly. And it will make a difference. And if we can stay broad-based
and simple, we'll be able to be quicker and be able to have a bigger impact
on the economy sooner.

CHAIRMAN LAZEAR: Excuse me, may I just add to that? There are many noble
goals, and there are many things that we want the government to do, many
programs that have been important and effective. But remember that the
goal that we are thinking about right now is to ensure that the economy
does not slow significantly. We're trying to make sure that growth is
enhanced, and that people who would not otherwise be working will be
working.

So our primary focus is on that, and not on thinking about ways to
distribute and take care of different needs, albeit those needs perhaps
particularly important. We believe that this is what we're talking about
right now, and that's growth.

SECRETARY PAULSON: Corbett. I recognize one of my own.

Q Thank you. I just wanted to ask you -- you said the goal seems to be
about speed. And I'm wondering, there seems to be a love-fest here in
Washington, which is pretty rare, over this stimulus package. But what are
your thoughts about when it gets to the Senate -- Senator Reid is not quite
maybe on the same page as everybody else, and if you're worried about it
slowing down once it gets to the Senate? And secondly, without getting
into the specifics, the principles mean that you want everybody to get a
tax cut?

SECRETARY PAULSON: Let me --

Q Rebate, excuse me. That was very important for the President in 2001.

SECRETARY PAULSON: First of all, Corbett, I would say that I had talked
before the call yesterday with all of the leaders. I talked with them
after the call. What I heard before the call, during the call, and after
the call was an emphasis of the things we agree on, wanting to be
collaborative from every one of them, wanting to work together in a
bipartisan fashion; everyone recognizing that the most important needs were
the American people, the economy, the need to do something quickly, and
sticking to the principles we talked about. So I would say that.

And in terms of the other question, I've answered that several times.

Q Mr. Secretary, how confident are you that this is actually going to
make that much of a difference to the economy at this stage of the game?
You know there's some economists out there who point to the track record,
historical track record of the fiscal stimulus in question or that these
kinds of principles even will make that much difference in a $14 trillion
economy.

SECRETARY PAULSON: I'm going to go to Ed in a minute, but I just want to
say that that's why the President wants to do something that's meaningful,
that's robust, that will make a difference this year. There are no silver
bullets. There's nothing that's perfect, but to be quick and to focus on
the areas we've mentioned, to give money to consumers -- there's plenty of
evidence you give money to people quickly, they're going to spend it, and
they're going to spend a reasonable percentage of that. We've got good
basis for that, looking at 2001 and 2003, and of course when you look at
putting incentives in place for business to invest quickly and grow and
hire people, that will work.

So the -- remember, what this focus is, is to boost the economy, support
the economy this year, give us growth this year, give us more jobs this
year. It won't be perfect, but again, the key in my mind is being simple
and being quick.

CHAIRMAN LAZEAR: I would just add to that, that's the main reason why we
feel that it's very important to focus on those components that are
growth-related rather than other goal-related. We've looked at this.
We've done some scoring.

Obviously this depends on what the actual program looks like, and that will
evolve as negotiations go through. But some of the things that we've
looked at, we believe will be quite significant both in terms of the
historical perspective and also in terms of the number of jobs that we will
create relative to what would have been the case in the absence of these
programs. That's the most important thing.

Q Do you have any --

Q (Inaudible) lead to recession?

SECRETARY PAULSON: I've never seen so many enthusiastic -- okay, the lady
in the back.

Q In terms of long-term --

SECRETARY PAULSON: This is almost like India, where they were --
(laughter.)

Q I have a question on India. (Laughter.)

SECRETARY PAULSON: It's a great country. (Laughter.)

Q In terms of long-term growth, a lot of people are saying because the
manufacturing base is gone, where do you see, in the next two to three
years, long-term growth? What sectors in this economy?

SECRETARY PAULSON: Well, let me start. I want to give you more detail
than you want on the manufacturing base because I would say it's
fascinating when you look at it. You may not know it, but who is the
largest manufacturer in the world? The U.S., by a lot. It's fascinating.
When I had looked at the data in 1950, we had about 30 million --
manufacturing jobs in the U.S. were about 30 percent of the country then,
and there are about 15 million manufacturing jobs, okay?

Today, we've got the same 15 million manufacturing jobs; they're about 10
percent. But the output has gone up seven times over that period, and we
-- you know, our manufacturing base is two-and-a-half times larger to
China, it's bigger than Japan, it's bigger than Germany. This is a story
about automation. And I would say to you, we have a broad-based, diverse
economy in the U.S.

And when people think of services, they very often think, well, gee, those
are low-quality jobs, et cetera. There are many high-quality, high-paying
service jobs in many sectors. So our economy is more diverse, stronger,
more -- you know, I've traveled all around the world and I will tell you,
the more I'm outside of the country, the more I see that even though we've
got our problems, I would put us up against any country in the world in
terms of our economy and our ability to compete.

Q But what areas do you have to grow?

SECRETARY PAULSON: Areas to grow? Well, first of all, exports are growing
very quickly right now. They've been growing faster than imports for some
time. So that is an area that's growing. And again, there are good -- we
have growth. When you look at our economy, we grew at almost 5 percent in
the third quarter, and we've had a headwind in terms of housing for some
time. We've got a headwind now in terms of energy prices.

We're concerned, and we're looking at the risk of the downside and we're
all over it. But again, this economy in my judgment is going to continue
to grow, albeit at a slower growth. And that's what we're focused on.

Q How many jobs would the stimulus create? How many jobs? You've got
an estimate.

SECRETARY PAULSON: Well, we sure looked at numbers. It depends on which
one. But the kinds of numbers we were looking at was half a million jobs,
more or less this year, and then carrying over into next year.

CHAIRMAN LAZEAR: Let me just qualify that. That's half a million jobs
more than would be the case were we not to enact these kinds of programs.

Q None of this addresses housing, which you keep saying is the most
significant downwind. What other steps are you considering taking to help
troubled borrowers? What other steps -- does that include modifying the
standards for Freddie Mac, Fannie Mae? What else are you going to do for
the housing --

SECRETARY PAULSON: Let me be clear on that, because this is something that
the President had directed us to get going on a long time ago. And we have
a very important program that put out, I think, some very encouraging data
today, which is the HOPE NOW alliance. So that program, which brings
together the industry to deal with the sub-prime mortgages whose rates are
being reset, and there's going to be 1.8 million mortgages where their
rates will be reset over the next two years. We have a big effort there to
prevent a market failure, essentially, and avoid preventable foreclosures.
And you're going to see -- continue to see data and metrics as we come as
to how we're doing there. Now that's one.

Second of all, as the President said today, we have a proposal, FHA
modernization. The Senate has passed it, the House has passed it, now we
need to get it out of conference so the President can sign it. That's one.
Another proposal we have is that we would like to, on a temporary basis,
raise the conforming loan limit for the GSEs -- Fannie, Freddie and so on,
so that they can be more -- they can be active in securitizing the jumbo in
the jumbo market. But we want to do this as a part of a fundamental reform
for those agencies, because they need a strong, independent regulator.

We also have a legislative proposal to raise the limits on the amount of
tax-exempt financing states and localities can use to help this industry
and help in the mortgage area. So we'd like to do that, and give them more
flexibility. The current law only lets them use their powers for
first-time homeowners.

So we've got those. But the key part of your question really is: The
biggest issue we have in our economy is housing and, consequently, why is
it that what you're talking about is broad-based general growth plan, not
something that is aimed more directly at housing? And the reason is, is
we've been open to any good idea we've heard, and we just haven't -- we're
focused on what we think are the right ideas. This market needs to
correct. We've had unsustainable growth for some period of time. We're
not trying to prolong that; it needs to correct. So what we're trying to
do is to provide help to the rest of the economy, and to the economy more
broadly, to help it better withstand and weather the effects that are
coming about largely as a result of this decline in housing prices and the
housing slump.

CHAIRMAN LAZEAR: Just to --

Q (Inaudible) is really important to feed the stimulus? Do you feel the
administration or Washington in general is a little slow to recognize the
seriousness, the gravity of this downturn, and to act?

SECRETARY PAULSON: Well, I've got to say this -- and I don't mean to sound
defensive here -- but I've spent time talking to economists and others that
are saying, now wait a minute, you don't believe the economy is in a
recession; you're not predicting it's going to go into a recession; why is
it? This is the first time we've heard of a broad-based stimulus plan,
growth program, at a time like this.

And what I've said is this: The President has been all over this economy.
We were focused very early, all during the August vacation period; the
President announced the housing program before Labor Day. He has been --
as we've looked at signs of the economy slowing down, he's had regular
meetings with his economic team. We started talking about -- very
seriously about the details of the kinds of things we're talking about
today in December, watched it over Christmas. Before he went to the Middle
East he said publicly that he was going to make a decision sometime before
the State of the Union. We've continued to watch this. And frankly, it's
very hard to move and get something exactly right.

I think we're on the front end of this, and the key now is going to be to
keep it simple and keep it broad-based, and do something that's bipartisan.
In other words, the proposal -- you asked a lot of questions that had to
do with ideas that you tend to hear from one side of the aisle. And again,
remember, we're trying to get something that can get enacted and is going
to have bipartisan support and can get active quickly.

CHAIRMAN LAZEAR: Can I just add to that? The language you used was
"gravity of the downturn." Remember that we are still at 5 percent
unemployment; 5 percent unemployment is below the average for the last
three decades. As Secretary Paulson said, our concern is that the risks
are on the downside, and there has been weakening in terms of growth. No
doubt about it; we're not in denial about that.

That said, we don't want to talk down the economy and make it sound worse
than it is. It is still a relatively healthy economy. We want to keep it
that way, and that's the reason that we're moving in this direction.

SECRETARY PAULSON: And we have a more than relatively healthy global
economy.

Q How soon are we talking about?

SECRETARY PAULSON: Have you asked a question yet?

Q No, I haven't.

SECRETARY PAULSON: Okay.

Q You've said several times that it's important to do this quickly. Can
you give us a time frame? How soon are we talking about? I think a lot of
Americans, hearing this news, basically want to know when are they going to
get their checks.

SECRETARY PAULSON: Well, I would say this: The first thing we need to do
is get something enacted, through both Houses and signed by the President.

Q What's your time frame for that?

SECRETARY PAULSON: I've got to tell you, my time frame is as soon as
possible.

Q Weeks?

SECRETARY PAULSON: No.

Q Months?

SECRETARY PAULSON: I've been encouraged, though, I've been encouraged by
some of the things I've heard very experienced congressional leaders talk
about, okay? The timeline that Steny Hoyer, for instance, put out, and
some others -- so I would -- what I want to do is say we should have a goal
of getting it out very quickly, and then, depending what it is, if it's
broad-based and simple, I believe then we'll be able to get it out quickly
and in time to make a real difference this year. And I don't think I can
say more than that.

Yes.

Q So I can ask a follow-up? A number of economists have said it's too
late. Do you believe it's too late?

SECRETARY PAULSON: Well, I think we just -- just in the interest of time,
I think we just answered that question, okay, because I think that was the
question we had here, is, why are you too late, and aren't you too late?
And I think what you heard Ed say -- unemployment is at 5 percent. You
heard me say some people are being critical and saying, why are you doing
something that's unprecedented like this before you've got more evidence of
the downturn?

You know, by definition, I've heard all kinds of people that have said to
me, the government can never move quickly enough when you have something
like this. Well, we're trying to disprove that. And so, again, I'm trying
to focus on the positive, and the positive is, we've got broad consensus in
Congress we need to do something, and so now we need to turn that into the
reality of legislation. And then I can tell you, when we get the
legislation, we're going to run like a bunny here to get the relief out.

Q Has the IRS --

Q Mr. Secretary?

SECRETARY PAULSON: Yes.

Q While you have made quite a few trips to India and recently were
there, you were talking about then as far as the U.S.-India civil nuclear
deal, and now India is making worse (inaudible) and they now need more and
more energy. What discussion you have with India now that Prime Minister
of India was in China, also talking about a nuclear deal with China also?
So where do India and the U.S. stand on those issues, and the need of
future energy for India?

SECRETARY PAULSON: Well, let me say, you're right. India, like China,
like the U.S. -- big importers of oil, big energy needs -- a lot of things
we can work on, in terms of energy security, in terms of new technologies.

I talked with them about working to eliminate the tariff on environmental
goods and services. To me, that is sort of almost unethical, in addition
to not making economic sense, when we know that there's technologies that
were available today that weren't available when we went through our
development stage, and developing countries are charging tariffs.

But on your question, which is the civilian nuclear deal, the point I made
when I was there is, this is something -- you know, India is a democracy;
they've got to make the decisions that are in their best interest. I think
it's good for the U.S. and I think it's good for India, and it's --
clearly, the nuclear power is going to be an important part of their
answer, and it's going to help them meet their needs in a clean and in an
efficient manner.

Okay, we've got one more. This is the last question, and we're going to go
far back.

Q Mr. Secretary, the crisis seemed to have started at the top of the
food chain with a classic liquidity trap. Now the solutions you proposed
today are aiming at us people at the bottom of the food chain. Is that to
say that the problems at the top of the food chain have been solved, or on
the way to being solved?

SECRETARY PAULSON: No, the -- let me say, I think your analysis is broadly
right when you say that we have had fundamental imbalances globally, and
we've had big, huge amounts of savings that are being recycled. And with
all of this liquidity reaching for yield, or investors reaching for a
higher yield, I think that's part of how we got here; and mis-pricing risk.
And it's going to take a good while to work through that. We have to take
longer to work through that period. And then, once we work through it,
it's going to take longer to put in place policy measures to reduce the
likelihood of these kinds of things happening. And of course, when you
look at the global imbalances, that takes longer still to sort those things
out.

So what this is -- remember that we made very clear, Ed has made clear,
others have made clear that looking at the economy in terms of the
longer-term, our economy is very healthy in terms of the long-term, but
there are longer-term issues that are very, very important for us to work
on -- nothing more important than making the tax cuts permanent; dealing
with the structural issues we have in terms of entitlements, Social
Security and Medicare; dealing with the structural issues we have in terms
of energy security; and of course the global imbalances. What this is, is
short-term focused on growth this year, giving relief to the American
people.